It takes guts to sacrifice $100bn of league table credit and a sack of financing fees in this anxious market, yet Merrill Lynch is right to have done so. The bank refused to lend the Brazilian mining group Vale money to fund a possible bid for Xstrata and as a result has been fired as its lead adviser.
Here’s what happened: Merrill’s M&A team originated the idea of the takeover and took it to Vale’s chief executive late last year. The bank pledged to provide some of the financing and was formally engaged, along with Lehman Brothers, to advise on the process. But Vale then demanded commitments from Merrill on multiple financing structures for the cash and shares bid which the bank believed were unreasonable. Merrill advised its client – as it was paid to do – that these structures would be bad for Vale shareholders.
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